Check against delivery
Good morning Madame Chair, Honourable members of the European Parliament,
Today my speech will be split into two parts:
Firstly, I’d like to cover some of the main items since I last came before this committee in October; mainly the progress in resolution planning and developments regarding the SRF. Of course, the impact of Covid-19 on the wider economy and banking sector is on all of our minds, but, given the time I have, this will not be the main focus of my intervention this morning. I will of course be delighted to take your questions on this on this and any other topic.
Secondly, I want to address some of the current discussions around enhancements of the wider crisis management framework as well as aspects of completing the Banking Union.
[1. A round up since the last ECON appearance]
It is almost five months since I addressed you last, so I’d like to give a brief overview on the main points of our work since then.
- We have been busy making the transition to BRRD 2. This is challenging as the changes are complex, but our teams at the SRB have been working with our national counterparts, as well as the banks, making sure the transition is a smooth one.
- The 2020 resolution planning cycle is well on track and coming to a close. Resolution plans and strategies for all our banks were updated and most banking groups have by now received their MREL targets for 2022 and 2024. This includes concluding around 450 MREL decisions. At the same time, we are already preparing for the 2021 cycle and all banks received their bespoke priority letters for 2021 during the last quarter of 2020.
- Policy work is also ongoing. As announced, we will clarify and extend our approach to the public interest assessment – taking into account systemic stress scenarios, in particular. In addition, we will publish our 2021 MREL policy, an expansion of the current policy, in time for the new resolution planning cycle. And we will further formalise the resolvability assessment and introduce a “heat map” to foster comparability. The latter might serve as a starting point for public information about resolvability, once it is sufficiently robust.
- In November, we published our Multi-annual work programme. This programme takes us up until the end of 2023. Needless to say, until then, the core priority for the SRB is to make progress on resolvability.
- We will do this by ensuring every bank has a clear work programme. We will work on areas such as the full operationalisation of the use of resolution tools and their combined use. This includes operationalising the Sale of Business, but also ensuring that a Single Point of Entry strategy indeed means Single Point of Entry, and that it works effectively in the event of crisis;
- ensuring MREL targets are reached, in line with the BRRD2 and;
- building up the Single Resolution Fund to its target amount.
Our multi-year work plan also accounts for the findings and recommendations that the European Court of Auditors highlighted in its recent report – some were already addressed last year since the cut-off of the audit. Overall, I am pleased that ECA noted good progress in bank resolution in the SRM. This said, our efforts achieving resolvability will continue. This is crucial for protecting taxpayers’ money and promoting financial stability.
- The impact of Covid will be something that the SRB continues to monitor closely. So far, so good. The flexible and prudent regulatory framework that this house helped to put in place in the wake of the last crisis is holding up well. Banks, this time, are part of the solution, not the problem and we should all strive for this to remain in future. However, I want to be clear to the banking industry: banks must be proactive now in identifying necessary adaptations to their business model and in particular potential NPLs in order to be part of the post-pandemic solution for recovery. Any business that was weak before the pandemic may have survived thanks to government supports, but as we see the necessary roll back of these measures, we will inevitably see an increase in business failures with the resulting NPLs. In any case, cautious provisioning has never hurt and I appreciate the SSM’s scrutiny here.
- We must, in the coming months, ensure that we avoid any temptation to continue to provide public support to entities under the cover of the pandemic emergency, where businesses – be they banks or otherwise – do not have viable business models in the “post-Covid-world”.
[2. Completing the Banking Union/CDMI review]
The Banking Union is still a house “under construction”, unfortunately. I am glad to see that there is currently momentum building up to address many of the aspects of the Banking Union – from how to deal with mid-sized banks to the home/host issues to the long-running debate over a European deposit insurance scheme.
The European Commission recently triggered a review of the Crisis Management and Deposit Insurance framework, including a public consultation. This welcome review will bring together much of the ongoing discussions.
Let me be clear – we need to finalise the Banking Union and in particular its third pillar. From our perspective as European resolution authority, we are not talking about a revolution of the system. We have a framework in place that evidently works. However, we must aim for an evolution of the framework.
Against this background, targeted amendments that draw conclusions from the past five years of recovery and resolution planning experience would certainly be an improvement. The key policy objective should be that any changes facilitate the resolution or liquidation process for all types of banks, regardless of their funding models and foster the Banking Union, i.e. strengthen the European approach. We should resist the temptation of re-nationalising crisis management practices that could result in fragmentation.
A core piece will be the establishment of the European Deposit Insurance System; the third pillar of our Banking Union. EDIS enhances the level of depositor protection and should meaningfully complement the crisis management framework, particularly if it contained some alternative measures allowing, for example, the support for transfer strategies, such as a sale of business. If we want to increase the efficiency and coherence of the wider framework for bank failure, we should stay ambitious, advance with EDIS in the context of current reform/CMDI discussions, and complete the Banking Union.
Let me briefly address three other important points where progress would be welcome:
- a harmonised insolvency procedure for banks, even if I am a realist and understand that this is some time off. Currently, we are faced with twenty-one plus different insolvency frameworks in the Banking Union.
- Furthermore, the possibility to provide state aid to banks under less strict requirements in insolvency proceedings than in resolution from my perspective raises credibility concerns. In this context, let me recall the need to align the Commission “Banking Communication” with the resolution framework.
- Those of you who have followed the SRB’s activities in the past know that I always mentioned the outstanding Backstop to the SRF. Here, I am very pleased to report that the backstop will come into play in 2022. Advancing the introduction by two years to early 2022 is a welcome sign of confidence that will increase optionality. This is an important step towards the completion of the Banking Union. However, despite the possibility to extend liquidity through the SRF and the backstop, financial capacities might not be enough to address highly adverse cash flow scenarios. Against this backdrop, we believe that a structural resolution liquidity solution that involves the SRF, ESM and central banks is still needed to complete the system.
Honourable members, we have made good progress since the last crisis, but there is still more to do. Our challenge now is to make sure we do not let our guard down as we try to emerge from the pandemic safely and in an economically sound way. I am sure, together with this house and this committee in particular, we will emerge even stronger in the post-pandemic era.